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Previous: CONNOR CLARK & LUNN INVESTMENT MANAGEMENT LTD, 13F-HR/A, 2000-11-06 |
Next: ACME ELECTRIC CORP, 10-Q, EX-27, 2000-11-07 |
(Mark one)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.
Class Outstanding at September 30, 2000
Common Stock, Par Value $1.00 Per Share 5,077,587
Unaudited Audited
September 30, 2000 June 30, 2000
(000's) (000's)
ASSETS
Current Assets:
Cash $ 552 $ 206
Accounts receivable, net 13,040 12,207
Inventories, net 12,969 11,140
Deferred income taxes 1,104 1,104
Other current assets 3,095 1,938
-------- --------
Total current assets 30,760 26,595
-------- --------
Property, plant and equipment, at cost 41,532 41,227
Less accumulated depreciation (27,282) (26,785)
-------- --------
Total property, plant & equipment, net 14,250 14,442
-------- --------
Other Assets 5,313 5,173
Total Assets $50,323 $46,210
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 6,650 $ 5,788
Accrued compensation and other 3,747 3,612
Current portion of long-term debt 243 249
-------- --------
Total current liabilities 10,640 9,649
Long-term debt 12,154 10,313
Deferred Income Taxes 1,686 1,686
Other long-term liabilities 1,906 1,856
-------- --------
Total Liabilities 26,386 23,504
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Shareholders' Equity:
Common stock, Par Value $1.00
Authorized 8,000,000 shares
Issued 5,077,587 and 5,077,587 shares 5,078 5,078
Capital in excess of par value 19,156 19,156
Accumulated deficit (289) (1,520)
Less: Treasury stock at cost
(699 Shares) (8) (8)
-------- --------
Total Shareholders' Equity 23,937 22,706
-------- --------
Total Liabilities and Shareholders' Equity $ 50,323 $ 46,210
======== ========
See accompanying Notes to Financial Statements.
13 Weeks Ended 13 Weeks Ended
September 30, 2000 October 2, 1999
(000's) (000's)
NET SALES $21,069 $19,271
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COSTS AND EXPENSES:
Cost of Sales 14,859 13,398
Research and Engineering Expenses 1,009 895
Selling and Administrative Expenses 3,224 3,289
Interest Expense 188 119
------- -------
TOTAL COSTS AND EXPENSES 19,280 17,701
------- -------
INCOME BEFORE TAXES 1,789 1,570
INCOME TAX EXPENSE 550 628
------- -------
NET INCOME $ 1,239 $ 942
======= =======
Weighted Average Number of
Shares Outstanding Used
to Compute Net Income per
Common Share:
Basic 5,077 5,072
Incremental Shares from
assumed conversion of
stock options 114 49
------- -------
Diluted 5,191 5,121
======= =======
NET INCOME PER COMMON SHARE
Basic $.24 $.19
======= =======
Diluted $.24 $.18
======= =======
See accompanying Notes to Financial Statements
13 Weeks Ended 13 Weeks Ended
September 30, 2000 October 2, 1999
(000's) (000's)
Cash flows from operating activities:
Net Income $ 1,239 $ 942
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization 497 532
Change in assets and liabilities:
Accounts receivable, net (833) (1,063)
Inventories, net (1,829) (1,198)
Deferred taxes and other assets (1,297) (192)
Accounts payable 862 1,198
Accrued compensation and other 185 (384)
--------- -------
Net cash used in operating activities (1,176) (165)
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Cash flows from investing activities:
Additions to property, plant and equipment (313) (423)
--------- -------
Net cash used in investing activities (313) (423)
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Cash flows from financing activities:
Increase (decrease) of borrowings, net 1,835 593
Proceeds from employee stock purchase
and stock options plans -- 10
--------- -------
Net cash provided from financing activities 1,835 603
--------- -------
Net increase in cash 346 15
Cash at beginning of period 206 203
--------- -------
Cash at end of period $ 552 $ 218
========= =======
See accompanying Notes to Financial Statements.
1. The Consolidated Balance Sheet of Acme Electric Corporation (“Registrant”) at September 30, 2000, the Consolidated Statement of Income for the thirteen-week periods ended September 30, 2000, and October 2, 1999, and the Consolidated Statement of Cash Flows for the thirteen-week periods ended September 30, 2000, and October 2, 1999, include all adjustments necessary for a fair representation of the results for such periods. The unaudited financial data included herein was compiled in accordance with the “Summary of Significant Accounting Principles and Practices” (Note 1 of Notes to Financial Statements) contained in the Registrant’s 2000 Annual Report filed on Form 10-K.
The consolidated financial statements include the Company and its wholly-owned subsidiaries, Acme Electric de Mexico, S. de R.L. de C.V. (Acme Mexico) and Servicios Acme de Mexico, S. de R.L. de C.V. (Servicios Acme). All significant intercompany accounts and transactions have been eliminated in consolidation. The Company considers the functional currency of the two Mexican subsidiaries to be the U.S. dollar for purposes of foreign currency translation.
The Company had no components of comprehensive income other than net income for all periods presented.
Pending Merger
On May 26, 2000, the Company entered into a definitive merger agreement (subsequently amended on September 18, 2000 and again on October 6, 2000) with Key Components LLC (Key Components), under which Key Components agreed to acquire the Company for $9.00 per share in cash plus assumption of debt. Closing of the transaction is conditioned upon the satisfaction of holding of a special shareholders’ meeting and a successful shareholder vote. Proxies were mailed on October 13, 2000 to shareholders of record as of October 6, 2000, to vote on this merger, with the special meeting of shareholders of Acme to be held on November 16, 2000.
2. Accounts receivables included in the Consolidated Balance Sheet are as follows:
September 30, 2000 June 30, 2000
($000's) ($000's)
Accounts receivable $13,210 $12,377
Less allowance for
doubtful accounts 170 170
------ ------
$13,040 $12,207
====== ======
3. Inventories included in the Consolidated Balance Sheet are as follows:
September 30, 2000 June 30, 2000
($000's) ($000's)
Raw Material $ 7,740 $6,165
Work-In-Process 2,039 1,792
Finished Goods 3,190 3,183
------ ------
$12,969 $11,140
====== ======
Inventories are reported net of reserves for obsolescence of $627,000 and $632,000 at September 30 and June 30, respectively.
4. Segment Reporting Disclosures
The Company operates in three business segments: Aerospace, Electronics, and Power Distribution Products. The Company’s reportable segments are strategic business units that offer different products and services to different markets. The segments are managed separately, based on the fundamental differences of their operations. Each business segment has a separate manufacturing facility.
Operations in the Aerospace segment provide design, manufacturing, and support services to the military and commercial aerospace market. Products include battery chargers, power supplies, and battery backup systems for a variety of commercial and military aircraft applications, as well as certain ground-based military applications. The Aerospace segment has a production facility in Tempe, Arizona.
The Electronics segment is focused on the electronic systems integration market and products for the emerging cable industry. The Electronics segment has a production facility in Cuba, New York.
The Power Distribution Products segment provides power conditioning solutions to industrial customers, delivered primarily through electrical distributors and related distribution channels. The core products are industrial transformers and related power conditioning products. The Power Distribution Products segment has its primary production facility in Lumberton, North Carolina and a supportive facility in Monterrey, Mexico.
Typical customers in all segments are well known companies in the aerospace, electronics, and power distribution business. Total net sales by segment consist entirely of sales to
Total net sales by segment consist entirely of sales to unaffiliated customers. Operating profit does not include the following items: general corporate income and expense, investment income, interest expense, or income taxes. Identifiable assets by segment consist of those assets that are, or will be, used in the segmental operations. Corporate assets consist principally of cash, business enterprise system, deferred taxes, and other assets.
Information by industry segment is as follows (dollars in thousands):
13 Weeks 13 Weeks
Ended Ended
September 30, 2000 October 2, 1999
Net Sales
Aerospace $ 2,158 $ 2,468
Electronics 4,463 3,668
Power Distribution Products 14,448 13,135
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Combined 21,069 19,271
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Operating Income (Loss)
Aerospace 150 219
Electronics (91) (349)
Power Distribution Products 2,371 2,551
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Combined 2,430 2,421
General Corporate Expense (453) (732)
Interest Expense (188) (119)
------- -------
Earnings Before Income Taxes $ 1,789 $ 1,570
======= =======
Identifiable Assets
Aerospace $ 4,489 $ 4,962
Electronics 16,355 15,787
Power Distribution Products 21,810 17,504
General Corporate 7,669 5,494
------- -------
Combined $ 50,323 $ 43,747
======= =======
Depreciation and Amortization
Aerospace $ 64 $ 97
Electronics 166 176
Power Distribution Products 132 117
General Corporate 135 142
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Combined $ 497 $ 532
======= =======
Capital Expenditures
Aerospace $ 63 $ 92
Electronics 173 42
Power Distribution Products 72 133
General Corporate 5 156
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Combined $ 313 $ 423
======= =======
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following is Management’s discussion and analysis of certain significant factors which have affected the Registrant’s financial condition and results of operations during the periods included in the accompanying financial statements.
Financial Condition
Pending Merger
On May 26, 2000, Acme (hereafter, the “Registrant”, the “Company” or “Acme”) entered into an Agreement and Plan of Merger with Key Components, LLC (“Key”) and KCI Merger Corporation (“KCI”), a wholly-owned subsidiary of Key, which merger agreement was subsequently amended on September 18 and October 6, 2000. The merger agreement provides for the merger of Acme and KCI, with Acme being the surviving corporation and will be a wholly-owned subsidiary of Key Components. Upon the completion of the merger, all outstanding shares of Common Stock of Acme, other than shares as to which dissenter’s rights of appraisal are perfected, will be converted into the right to receive $9.00 per share in cash. Proxies were mailed on October 13, 2000 to shareholders of record as of October 6, 2000, to vote on this merger, with the special meeting of shareholders of Acme to be held on November 16, 2000.
Acme previously had entered into an Agreement and Plan of Merger with Miranda Holdings Inc., under which Miranda had agreed to acquire Acme for $8.00 per share in cash plus assumption of debt. The agreement with Miranda was terminated on May 26, 2000 with the execution of the merger agreement with Key. Acme at that time paid a termination fee to Miranda of $2,500,000 plus expenses.
Capital Resources and Liquidity
A summary of the period-to-period change in the principal items included in the balance sheets and which affect financial condition follows:
Comparison of Balance Sheets at
September 30, 2000
and
June 30, 2000
Increase (Decrease)
(000's)
Current Assets $4,165
Property, Plant & Equipment Net (192)
Other Assets 140
-----
$4,113
=====
Current Liabilities $ 991
Long-Term Debt and Other Liabilities 1,891
Shareholders' Equity 1,231
-----
$4,113
=====
Current assets at September 30, 2000, increased $4,165,000, or 15.7%, from June 30, 2000 levels. Receivables and Inventories increased $833,000 and $1,829,000, respectively from June 30, in support of higher sales at both the Company’s Power Distribution Products Division and Electronics Division. The increase in sales within the Power Distribution Products business reflects the increasing order and shipment activity associated with the Invensys PLC (Powerware) outsourced magnetics programs. Improving sales in the Electronics business is attributable to long term developing customer programs now beginning to move into the order and shipment phases. Further contributing to the increase in current assets was $815,000 of additional asset recognition associated with the insurance benefit on a Company owned officer life insurance policy.
The net decrease in property, plant and equipment of $192,000, or 1.3%, reflects year- to-date expenditures in the amount of $313,000 offset by depreciation of approximately $497,000.
Current liabilities increased $991,000, or 10.3%, from June 30 primarily due to the increase in trade payables associated with the higher raw material inventories on hand to support the businesses’ program ramp-ups and Mexico operation.
Long-term debt and other liabilities increased approximately $1,891,000, or 13.6%, primarily due to the increase in working capital needed to support the escalating business activity in the Company’s Power Distribution Products Division and Electronics Division.
The increase in shareholders' equity of $1,231,000 is primarily due to the profit year-to- date of $1,239,000.
The Company has financed its working capital requirements, as well as year-to-date capital expenditures, in part, through operations, with the balance coming from increased bank borrowings.
The Company has in place an unsecured credit agreement which provides for revolving loans and letters of credit up to $15,000,000, with interest at the lower of prime or the London Interbank Eurodollar rate plus .6% to 1.4% range, with an outstanding balance at September 30, 2000 of $8,617,000. The credit agreement provides for a maturity date of December 31, 2002. Under the terms of the credit agreement, the Company is required to comply with certain restrictive covenants with respect to interest coverage, debt-to-EBITDA, and fixed coverage ratios. The covenants further provide for a minimum net worth test and annual maximum capital expenditure and lease commitment thresholds. Management believes that this credit arrangement will provide adequate liquidity for the future.
Results of Operations
Acme reported net income of $1,239,000 or $.24 per share on consolidated net sales of $21,069,000 for the quarter ended September 30, 2000, compared to net income of $942,000, or $.18 per diluted share on consolidated net sales of $19,271,000 for the quarter ended October 2, 1999. First quarter of fiscal year 2001 net income included $815,000 of life insurance proceeds offset partially by non-recurring expenses of $314,000 related to Acme’s pending merger with Key. Net income for the prior year’s first quarter included a $200,000 insurance recovery income associated with the Company’s 1997 municipal landfill settlement. Excluding these non-recurring income and expense items from net income, the Company’s quarter net earnings, were essentially equal to those of the prior year same period, but on increased sales of $1,798,000. The primary factors contributing to the slightly lower operating margin percent include the ramp-up activity associated with the Invensys programs, as well as the continued effort of bringing on-line the Monterrey, Mexico manufacturing operation.
Consolidated sales for the thirteen-week period ended September 30, 2000, were $21,069,000, compared with $19,271,000 for the comparable period of a year earlier. This increase of 9.3% from the same period of the prior year is due mostly to the improved sales in the Company’s Power Distribution Products Division (additional $1.3 million ) as a result of the escalating shipment activity on the Invensys (Powerware) program. Further contributing to higher sales was the Electronics Division, where sales were up in excess of $800,000 over prior year same period. This Division experienced stronger order and shipment activity on several programs pursued in the wake of the loss of the Cisco account in 1999, as long term efforts to turn the business have begun to materialize. Sales in the Aerospace business declined $310,000 from the prior year quarter as certain customer contracts expired, while renewal negotiations remain in process. The backlog, as well as incoming orders are down in this business ($1,071,000 and $955,000 respectively) from October 2, 1999 and the three month period then ended. The Aerospace Division continues to pursue and explore new program opportunities with both existing customers and new customers.
Gross margin as a percentage of sales for the thirteen-week periods ended September 30, 2000, and October 2, 1999, were 30.5% and 29.5%, respectively. Gross margin, both in absolute dollars and as a percent of sales (21.1% vs. 14.3%) improved significantly in the Company’s Electronics business, where improved sales volume (to absorb fixed costs) combined with a more profitable product mix contributed to an improved quarter. Gross margin in the Aerospace business remained constant at 24%. In the Power Distribution Products business, though gross margin dollars remained unchanged at $4,800,000, the gross margin percent declined from 36% to 33%. The lower margin percentage reflects some temporary labor and overhead inefficiencies associated with the production ramp-ups related to the growing Powerware program and the increased manufacturing activity in the Company’s Monterrey, Mexico facility.
Research and engineering expenses as a percent of net sales for the thirteen-week period ended September 30, 2000, increased slightly (from 4.6% to 4.8%) compared to the same period of the prior year. This slight increase reflects the additional costs incurred in support of the increased business in the Electronics Division.
Selling and administrative costs as a percent of net sales decreased to 15.3% for the thirteen-week period ended September 30, 2000, from 17.1% for the comparable period of the prior year. The actual costs in the quarter-to-quarter comparison were relatively constant once the merger related costs and the offsetting incomes are excluded from the analysis. Current year actual selling and administrative costs were slightly higher in the Power Distribution Products business in support of higher sales and a full quarter of operation for the Monterrey facility. Included within the current quarter consolidated selling and administrative expense lines, are offsetting income items including $815,000 of life insurance proceeds and $65,000 of earned performance incentives. Similarly, a $350,000 insurance recovery related to the 1997 landfill settlement and $149,000 earned performance incentive, were recorded in the prior year comparative quarter. Further included in the current year quarter were $314,000 of non-recurring costs related to the pending merger with Key Components LLC.
Interest expense as a percent of net sales for the thirteen-week period ended September 30, 2000, increased slightly from 0.6% to 0.9%, as compared to the same period last year. The increase in interest expense in the quarter-to-quarter comparison is due to a higher average debt level outstanding during the current year quarter, primarily a result of financing the $3.5 million non-recurring merger costs incurred over the past five months.
Income taxes as a percent of income before taxes for the thirteen-week period ended September 30, 2000, was 30.7%, compared to 40% reported for the same period of the prior year. The lower effective tax rate in the current year is due to the tax exempt income recognition associated with the life insurance proceeds partially offset by the non-tax deductible portion of non-recurring merger expenses. Therefore, approximately $500,000 of income is not subject to income taxes.
Consolidated backlog at September 30, 2000, was $19,317,000, compared with $12,295,000 at the end of the comparable period of the prior year. The Electronics Division’s backlog grew from $6 million to over $13 million as customer orders began to materialize on long developing programs. The Power Distribution Products Division’s backlog increased nearly $1 million due to the Invensys program, while the backlog in the Aerospace business declined approximately $1 million, as orders fell during the quarter.
Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities”, as amended by SFAS No. 138, became effective for the Company in the first quarter of fiscal year 2001. SFAS 133 requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The accounting for changes in the fair value of a derivative will depend on the intended use of the derivative and the resulting designation. As the Company has no derivative instruments, nor hedging activities as defined by SFAS No. 133 and 138, there was no effect of adoption.
The Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (“SAB”) No. 101 “Revenue Recognition in Financial Statements.” The SAB, as amended, is effective for the fourth fiscal quarter for fiscal years beginning after December 15, 1999. The SAB summarizes certain of the SEC Staffs’ views in applying generally accepted accounting principles to revenue recognition in the financial statements. The Company is still evaluating the impact from adoption, but currently does not expect such impact to be material.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
(See disclosure from Item 7A of Form 10-K fiscal year ended June 30, 2000)
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Financial Data Schedule. See Exhibit 27 attached.
b. Reports on Form 8-K
None.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ACME ELECTRIC CORPORATION
(Registrant)
Date: November 7, 2000 /s/ Robert J. McKenna
---------------------------
Robert J. McKenna
Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
Date: November 7, 2000 /s/ Michael A. Simon
---------------------------
Michael A. Simon
Corporate Controller and
Assistant Secretary
(Principal Financial Officer)
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